What is Asda’s new ownership structure?
Walmart also remains a shareholder - details below.
In October 2020 it was announced that Walmart had sold Asda, putting it back under British ownership for the first time in 21 years. It was bought by the Issa brothers and private equity company TDR Capital.
Asda CEO Roger Burnley said the move reflected the company’s “proud northern roots” - but is there much to be proud of when it comes to Asda’s new owners?
Here we highlight some of the major ethical issues with Asda’s new owners and show why Asda continues to be one of the UK’s least ethical supermarkets.
Walmart also remains a shareholder - details below.
The story of Zuber and Mohsin Issa, also known as the Issa brothers or billionaire brothers, has been celebrated as one of rags to riches. As the story goes, the brothers turned a single petrol station they acquired in 2001 in Bury, Manchester, into global forecourt empire, EG Group, before making the bid for Asda.
Private equity company TDR Capital helped with the brothers’ forecourt success - it merged the brothers’ company Euro Garages with European Forecourt Retail Group in 2016 to form EG Group, which has around 4,500 sites across the UK, Europe, the US and Australia.
It’s unclear exactly what shareholding TDR Capital has in EG Group, though CityIndex claims that it is 50% owned by the Issa brothers, and 50% owned by TDR Capital.
EG Group therefore has a similar ownership model to Asda - significantly owned by both the Issa brothers and TDR Capital.
Prior to their forecourt success, the Issa brothers (Mohsin, Zuber and Zakir at various points) were directors of plastic packaging manufacturing company ‘Europlast Blackburn Ltd’, which they founded in 1993 and was worth £9.2m by 2015.
Europlast provided the brothers with an interest-free loan of £251,393 in 2002, helping fund the growth of the brothers’ forecourt business.
The second company that part owns Asda is private equity firm TDR Capital.
TDR was founded in 2002. In addition to Asda and EG Group, its portfolio of current investments includes David Lloyd Leisure and Aggreko - and controversial companies such as Target Hospitality (see below).
TDR specialises in ‘leveraged buyouts’ - buying up companies using large amounts of debt. This is what has made it possible for TDR and Issa brothers to buy a £6.8bn business for less than £800m. While TDR and the Issa brothers have split the £780m cash payment to Walmart, the majority of the purchase price of Asda (just under £4bn) will be borrowed.
For example, TDR and Issa brothers raised purchasing money by selling off Asda’s petrol stations (to their own company EG Group), and selling Asda’s warehouses and distribution system, which it will now rent instead of own.
Having a debt-ridden structure such as this enables companies to pay much less tax on profits.
Companies can reduce their corporate tax bill by deducting interest payments from their profits before calculating how much tax they need to pay.
US multinational Walmart acquired Asda in 1999. While it’s now sold its majority shareholding, Walmart has committed to maintaining an equity investment in Asda and a seat on the board. The specific shareholding Walmart will have in Asda has not yet been published. One BBC article stated that Walmart’s stake in Asda will be valued at £500m.
Until the shareholding figure is published, we’ve estimated Walmart to have a 10% shareholding so that this ownership is reflected in Asda’s Ethiscore.
In a bold move Asda’s new owners decided to immediately incorporate the company in tax haven Jersey, meaning that Asda scores our worst rating for Likely Use of Tax Avoidance Strategies.
Asda’s December 2020 accounts stated that it was ultimately controlled by “Bellis Holdco Limited which is jointly controlled by the Issa brothers and TDR Capital LLP", and is incorporated in Jersey. The Tax Justice Network says Jersey has tax and financial systems that provide "unrestrained scope" for corporate tax abuse.
The Issa brothers and TDR have a history of troublesome tax conduct, and both score our worst rating for Tax Conduct.
TDR has high risk subsidiaries in Jersey, Guernsey, Luxembourg and the Netherlands. We didn’t look in detail at the tax policies of other TDR Group investments, though did notice that one of them - Stonegate Pub Company, the largest pub company in the UK which owns brands including Slug & Lettuce - is incorporated in the Cayman Islands.
EG Group, the forecourt empire owned by Issa brothers and TDR Capital, paints a bleak picture if it provides any indication of how Asda’a taxes will be managed. EG Group has high risk subsidiaries in tax havens Jersey and the Netherlands, and most of its operations across European countries such as Germany, Italy and France are held by parent companies based in the Netherlands.
EG Group was slammed in a 2020 article which claimed it was linked to a string of global tax havens including the Cayman Islands. It claimed EG Group was fuelled by billions of pounds of debt, meaning the loss-making group managed to pay just £55m in tax over five years – including two years when the company paid no corporate tax at all – despite total revenues of £37.5bn for the period.
In 2020 professional services company Deloitte resigned unexpectedly as auditor of EG Group’s accounts. Although Deloitte did not publish a statement about this move, according to the Financial Times the auditor resigned over “governance concerns” and concerns that “EG Group’s controls had not improved in line with its growth”.
Asda had a poor track record on tax prior to the takeover due to being owned by Walmart - and it’s worth noting that Walmart still has an equity investment in Asda. Walmart has holding companies in the British Virgin Islands, and was criticised by Quartz for having allegedly “improperly avoided” £2.6bn in US taxes “through an elaborate tax dodge involving a “fictitious” Chinese entity”. Walmart also scored our worst rating for Tax Conduct.
Walmart has an ethiscore of 0, so under our ratings system the new owners could literally only be an improvement.
However, the improvement in Asda’s ethiscore is negligible - it’s increased from from 0 to just 1, out of a possible 15.
Asda currently loses a whole mark under the following categories: Climate Change, Pollution & Toxics, Habitats & Resources, Palm Oil, Factory Farming, Animal Rights, Workers’ Rights, Irresponsible Marketing, Political Activities, and Tax Conduct.
It loses half marks under the following: Environmental Reporting, Animal Testing, Human Rights, Supply Chain Management, Controversial Technologies, and Anti-Social Finance.
Sometimes a company’s parent might have poor policy on an ethical issue, but the subsidiary makes a big effort (such as Coca-Cola whose subsidiary Innocent drinks is a B Corporation). This isn’t the case with Asda. Regardless of the ethical issues with its parent companies, Asda supermarket has poor policies.
For example, Asda’s parent companies score worst ratings under the Carbon Management and Reporting rating due to their heavy involvement in fossil fuels and lack of adequate policies. Asda the subsidiary also scores a worst rating - it didn’t have a commitment to phasing out HFC refrigerants, even though refrigerant gases account for approximately a third of the company’s Scope 1 emissions according to its environmental report. It also has limited reporting on its Scope 3 emissions, and was considered to be involved in a damaging industry due to its petrol sales.
Asda is also facing a lawsuit for gender discrimination, has been accused of worker mistreatment, and supplying from farms that abuse turkeys. We discuss these ratings in more detail on Asda’s company profile.
In addition to being involved in the highly damaging industry of petrol, EG Group doesn’t report on its carbon emissions, or have policies surrounding HFC refrigerants (which are commonly used in refrigeration systems like those in garages and are highly damaging to the climate).
For a company with a turnover of £17bn in 2019, the discussion of investing £6m into reducing its carbon footprint through solar panels on some forecourts and steps such as “rain water harvesting where possible” appear to be woeful attempts at taking responsibility for its climate impact.
TDR is already a problematic private equity company due to its investment in petrol retailer EG Group. Our research revealed that TDR is invested in another troublesome company. TDR owns 63% of shares in Target Hospitality, a company that builds and manages large-scale accommodation for controversial projects.
Target Hospitality’s website lists a range of projects, at least five of which were commissioned by oil companies such as Occidental Petroleum and Marathon Oil. These lodgings are built in remote locations where clients go to drill for fossil fuels.
According to Target’s annual accounts “we provide specialty rental and hospitality services that span the lifecycle of our oil and gas customers’ projects. Our services cover the entire value chain of oil and gas projects, from the initial stages of exploration, resource delineation and drilling to the long-term production, pipeline transportation and final processing”.
Target Hospitality lists ‘Texas Immigration Facility’, also known as the South Texas Family Residential Centre, among its projects. It built the centre which was commissioned by Corrections Corporation of America (now known as CoreCivic) and US Immigration and Customs Enforcement (ICE).
Target owns this facility, which is the largest migration detention centre for families in the US, and operates it, providing on-site services including catering, culinary, management, janitorial and light maintenance.
The facility has 2,400 beds, and one of the challenges of developing the project cited was its “remote location”. It says "The South Texas facility is the largest project to-date in scope and scale that Target Hospitality has built."
Katy Murdza of the American Immigration Council told Ethical Consumer “Since its opening in 2014, the detention of families at the South Texas Family Residential Center has consistently led to medical neglect, due process violations, and the re-traumatization of asylum-seeking parents and children. It is very common for children to refuse to eat, behaviorally regress, or become despondent soon after arriving at the facility. Families are arbitrarily deported based on superficial decisions made during their detention at the facility, without the opportunity to properly prepare their case or have their fair day in court.”
“The involvement of for-profit corporations like CoreCivic and Target Hospitality in detention creates perverse financial incentives that fuel our mass detention machine. It is crucial that we take private profit out of the equation. However, while this would be an important first step, all types of immigration detention, including local jails and ICE-run facilities, are harmful and unnecessary and should end.”
The BBC reported in February 2021 that a migrant girl from El Salvador, aged 9, had spent 531 days detained by the US in this facility with her mother.
Target Hospitality also built the Athena Olympics site in Greece, used by the US government for the storage of military vehicles and weapons, and a military training centre in Iraq for the US military, called the ‘Basra Training Facility’.
If you'd prefer not to shop at Asda, read our guide to supermarkets to find out how other supermarkets fare in comparison.
Visit Asda’s company profile to read about its policies in detail, from animal rights to palm oil sourcing.
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